All else constant, which one of the following situations will produce the highest call price given a strike price of $27.50?
A)$25 stock price; 15% standard deviation
B)$25 stock price; 30% standard deviation
C)$30 stock price; 15% standard deviation
D)$30 stock price; 30% standard deviation
E)Insufficient information is provided to answer this question.

Question

Quizplus · Accepted Answer

The higher the stock price and standard deviation, the higher the call price. Choice D has both a higher stock price and a higher standard deviation compared to choices A and C, and choice B has the same stock price but lower standard deviation. Therefore, choice D will produce the highest call price.

All Else Constant, Which One of the Following Situations Will